Rules of the Game: Bad News for Nations Nonprofits

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In an election that until lately has been dominated by super PACs, politically active nonprofits are the new bad guys, drawing ethics complaints, letters to the IRS and legislative action.

That is bad news for the nation’s 1.6 million nonprofits, which have much to lose as their sector gets dragged into political money controversies. For reform advocates, the problem with big-spending, secretive nonprofits is that they answer to no one and keep voters in the dark. But the worst damage inflicted by unrestricted, undisclosed campaign money could be on nonprofits themselves.

“Charitable organizations depend on the confidence and trust of the public for support,” said Diana Aviv, president and CEO of Independent Sector, which represents the nonprofit and philanthropic community. Campaign spending by nonprofits, she added, could pose “a serious reputational risk” to the sector.

Overtly partisan groups such as the Karl Rove-founded nonprofit Crossroads GPS and the White House-friendly nonprofit Priorities USA Action have drawn fire for blurring the line between legitimate social welfare advocacy and blatant politicking.

Independent Sector has put together a task force to respond to the explosion in political spending by tax-exempt organizations, particularly 501(c)(4) social welfare groups. The Supreme Court’s Citizens United v. Federal Election Commission ruling lifted campaign spending limits not just on corporations but on all incorporated groups, including unions, trade associations and 501(c)(4) nonprofits.

Such tax exempt groups have drawn as much or more controversy lately than the hundreds of unrestricted super PACs ushered in by Citizens United. That’s because unlike super PACs, which at least in theory must disclose their activities to the FEC, nonprofits face no disclosure requirements whatsoever.

Yet some 501(c)(4) social welfare groups are making direct transfers to super PACs, and others are spending tens of millions of dollars on TV ads that look a lot more like campaign commercials than educational messages. In 2010, the first election after Citizens United, non-disclosing tax-exempt groups spent $133.3 million on candidate-oriented expenditures, according to the Center for Responsive Politics.

In 2012, election-related nonprofit spending is expected to soar even higher. Crossroads GPS collected an estimated $32.6 million in 2011 — far more than the $18.4 million raised by the group’s affiliated super PAC, American Crossroads. Together, the groups have said they will spend $240 million.

The conservative super PAC FreedomWorks for America received $1.4 million — nearly half of its $3 million budget — from its affiliated nonprofit FreedomWorks, according to the CRP. Two Democrat-friendly super PACs — Priorities USA Action and American Bridge 21st Century, have received more than $200,000 apiece from their respective nonprofit affiliates.

All this has roiled reform advocates on and off Capitol Hill. A group of Democratic Senators recently called on the IRS to act “immediately to prevent abuse of the tax code” by politically active social welfare nonprofit groups. The Senators pledged to pursue legislation if the IRS fails to respond. House Democrats have introduced a disclosure bill that would require nonprofits, as well as super PACs, to reveal more about their election-related activities.

Watchdog groups have repeatedly asked the IRS to investigate. Most recently, Citizens for Responsibility and Ethics in Washington complained to the IRS and the FEC that the pro-business nonprofit Americans for Job Security violated tax laws by spending more than 70 percent of its money on political activities. The group’s organizers have denied any wrongdoing.